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PSE seeks tighter rules on backdoor listing

The Philippine Stock Exchange (PSE) plans to add new requirements on its backdoor listing rules in an effort to protect and ensure that minority shareholders and potential investors are timely apprised.

“The exchange seeks to strengthen the regulation of reverse takeovers or transactions leading to the backdoor listing of unlisted companies or businesses, given that these companies or businesses do not go through the initial listing process and are not subject to the same level of scrutiny applied to companies conducting an initial public offering (IPO),” the local bourse said in a memorandum on Thursday.

The proposed amendments include changes in triggers for backdoor listing. The listing will occur if the transaction will result in changes in control of the listed company, changes in the board of directors, or if it will lead to changes in the business of the listed company.

If a listed company attributes over 50% of its revenues and/or assets to its new business as reflected on its latest financial statements, then it would be considered a substantial change in business.

“The proposed amendments were benchmarked against the rules of Bursa Malaysia, Stock Exchange of Thailand, Singapore Exchange, and Stock Exchange of Hong Kong, where an acquisition of assets by the listed company resulting in change in control of the listed company or certain percentage ratios being breached is deemed to be a backdoor listing,” the PSE said.

The transaction must be detailed through a “comprehensive corporate disclosure” submitted to the PSE within five trading days from the exchange’s directive.

Otherwise, the listed company must pay penalty fees.

The penalty fee for the first offense is P50,000 and the second offense will be P75,000.

Third and succeeding offenses have a penalty of P100,000 and the company might be suspended from trading. The exchange might also consider holding delisting proceedings depending on the violation.

The PSE also proposed that if a backdoor listing would involve the issuance of the listed company’s primary shares or if it would result in the company acquiring assets, a go-signal will be needed from at least two-thirds of its board of directors and from stockholders owning at least two-thirds of the listed company.

If the company fails to submit the required corporate approvals, penalty fees may also be charged.

The exchange also wants a written notice from the Securities and Exchange Commission (SEC) if the new controlling stockholder is not mandated to issue a tender offer based on Rule 19.3 of the Implementing Rules and Regulations of the Securities Regulation Code. If the transaction does not result in a change in the listed company’s registration statement, then a notice from the SEC should also be submitted to the exchange.

The backdoor-listed company may also be required to conduct a public offering within a year since the listing was triggered, otherwise listed shares will be suspended from trading.

“A backdoor-listed company shall conduct a public offering of at least 10% of its issued and outstanding shares within one year from closing or completion of the transaction giving rise to backdoor listing. A stock rights offering shall not be deemed a public offering for purposes of this rule,” the local bourse said.

The proposal also includes provisions on locking the shares with the investors.

Those who bought shares which resulted in the backdoor listing will be locked in until six months after the public offering. Shareholders owning some 10% of issued and outstanding shares meanwhile will be locked in for one year from the transaction leading to the backdoor listing.

If the lock-up provision is violated, the company will be charged with penalty fees. A backdoor listing fee of P5 million is included in the proposal, which may be settled upon closing or completion of the transaction.

The PSE is seeking parties to comment on the proposed amendments. — Keren Concepcion G. Valmonte

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